The two books have much in common. They’re written by people who aren’t personal finance gurus – instead, they just bring a lot of very specific passion about a very specific topic to the table. The books are short and very tight, drilling right in on their points. Their ideas are realistic and sensible – and the concepts are repeatedly backed up by both life experience and with the more lofty and scholarly writings of others.

While Mihalik drilled in on the dangers of debt, Piper’s focus is simple: investing can and should be simple and it shouldn’t require all your focus. Worrying about market fluctuations is bad. Picking stocks is a nerve-wracking gamble. Moving your money around all the time requires too much attention. Instead, Piper argues that we should be largely oblivious to our investments – and the idea is backed up with a lot of sound principles.

Piper’s book has two interconnected parts.

Part One: The Plan
Piper’s plan is very simple, but in those few pages he incorporates quite a lot of the ideas that have been written about for years by hundreds of investing experts – Burton Malkiel, John Bogle, and so on.

Here’s the idea. It’s possible to pick the best stocks if you have all of the information. However, there is so much information that it’s actually impossible for people – even people who devote their lives to the study – to absorb enough information to make those picks consistently.

What we can do is step back and look at some bigger patterns. Over the short term, the stock market fluctuates a lot – one only has to look at 2007 and 2008 to see that. Over the long term – ten to fifteen years or more – the stock market shows positive returns. Over even longer terms – twenty years or more – it shows very nice positive returns.

So, the first step is to figure out your goals. What are you saving for? How far off is that goal? If it’s not very far off, avoid the stock market – it’s too volatile. If it’s very far off (more than ten years), invest in the stock market – but invest in the whole stock market and do it as cheap as you can.

How do you do that? Buy index funds. Extremely broad index funds (like, for example, the Vanguard Total Stock Market Index) let you own every stock in the stock market all at once, and the costs are very small.

So, your investment plan is this: if your goal is short term, invest a certain amount each week/month into bonds or CDs or something else very stable and with positive low returns. If your goal is long term, invest a certain amount each week/month into a broad based index fund. Then, forget about it until you get close to your goal.

Part Two: The Noise
Once you’ve made the decision to invest, the real trick is to filter out the noise.

First, train yourself to ignore what’s going on today, this week, this month, and this year. The stock market is volatile – live with it. The trick is to remember that you’re investing for the long term. Volatility doesn’t equal long-term risk. Another thing to remember is that short term stock market volatility is entirely unpredictable. So just ignore it.

Second, don’t bother chasing the “best” funds. Instead, just put your money in an index fund that matches the market for cheap. Why? A fund that’s the “best” one year is quite likely to not be the best in subsequent years – the market changes, investors herd into the fund and flood it with too much money so that the strategy doesn’t work any more, and there’s a lot of cost in jumping from fund to fund. Just pick a steady, average fund and leave it there – ignore the “fund of the minute” and the talking heads on CNBC.

Third, ignore specific stock tips. The ones in the media are often placed there by analysts who are set to profit from people following that tip. The one from your uncle might be useful or it might not be – but don’t bet your future on it. Ignore all the specific investment tips.

If you’re filtering out all of that, you’re left with just one thing: your plan. Keep investing, steady and surely, and don’t sweat the little swings or the panicked talking heads.

Is Oblivious Investing Worth Reading?Oblivious Investing does a fantastic job of laying out the “buy and hold” strategy in layman’s terms that anyone can understand. For a person who simply wants to begin investing their money for the long term but doesn’t want to spend every day praying at the altar of CNBC, Oblivious Investing is a great read.

If you want detailed advice on portfolio management, this isn’t your book. If you want comparisons of individual investment strategies, this isn’t your book. Piper makes one big point throughout this book – he makes it thoroughly and clearly, but Oblivious Investing doesn’t try to be a Swiss Army investment book. If you want that, read The Bogleheads’ Guide to Investing.

I should say, though, that I subscribe to the investing strategy in Oblivious Investing. It works well for me and this is the best layman’s description of it that I’ve yet read.

All of the famous personal finance experts and bloggers have long recommended index funds as opposed to managed funds and individual stock picking. There are a variety of reasons of course – lower costs being one of the most important.

I have a simple question:

Have those giving this “buy-and-hold” advice actually looked at the stock market recently? We had 12 years of supposed incredible growth wiped out in a total of 8 months.

Just because when we look back 25 years we see awesome growth, doesn’t mean the next 25 years will be that way. You need only look at the last 10 years to realize that.

I’m not trying to be pessimistic. I do believe the market will go up. But I think that equities (stock market investing) are not necessarily the sure investment they used to be and we shouldn’t put our faith solely in them. Just having a diversified portfolio in the stock market with some index fund is NOT diversified enough.

An investment after TEN years yielding NEGATIVE?? Are you kidding me? That’s so insanely bad I can’t believe people are still recommending the stock market at all, let alone a buy-and-hold strategy.

I think index funds are great, and well-managed funds are not to be discounted too much. But please, let’s stop claiming that the stock market is the only place to invest money. There are lots of good investments besides equities, and we need to make sure we diversify among them.

It seems that every personal finance “expert” just recommends buy-and-hold because historically that’s been okay (only if you ignore the last 8 months, of course), it’s simple and easy, and most don’t have a clue about investing anyway.

“It’s possible to pick the best stocks if you have all of the information. However, there is so much information that it’s actually impossible for people – even people who devote their lives to the study – to absorb enough information to make those picks consistently.”

This is an interesting statement for two reasons.

First, the claim that beating the stock market has never been done. I submit that there have been certain people that have consistently beat the market (Magellan fund anyone?). And so the claim that it has not been done is false. Granted, I will accept that such examples are most likely due to luck — given enough people playing the stock market, one of them will eventually write Macbeth, or something like that. But the fact remains that it has been done. Just not on purpose.

Second, the claim that it is even *possible,* to pick the best stocks on purpose. This seems like a dubious claim — especially if you are also going to say that no one has done it (so how do you know that it *is* possible?). Perhaps in the short run it would be possible, but it seems likely that any such strategy would be immediately taken into account in the pricing of stocks, once it became widely known and the advantage would fall away. Yes, I realize that this is shades of “A random walk down wall street”.

I feel like it is most likely not even possible to ALWAYS beat the market, even with ‘ALL’ the information. But that is just my take. I just thought it was interesting that you would suggest it was possible. I would intrigued to learn why.

I hope this does not sound like an attack. I am genuinely curious, as it seem likely that you have thought about this.

Pretty sound advice. Even Warren Buffet has said many times that the average person should be dollar cost averaging into a broad index fund….preferrably a no load or exchange traded ETF. Buy little chunks every month or every quarter…through thick and thin, good times and bad. Do it over the long haul and you will do quite well. Most likely you will outperform 75-80% of all managed mutual funds when considering their higher expense ratios that can add up to tens of thousands of dollars over a decade or two.

Hi Trent. Thank you for taking the time to read and review the book. I really appreciate it.

Eric: I agree with you that diversification among asset classes is a prudent idea.

The narrative format of the book doesn’t lend itself to in-depth discussions of various asset allocation strategies. My hope was simply to show readers who are new to investing that there are sound, common sense reasons to expect a diversified portfolio of equities to earn worthwhile returns over extended periods. (That is, periods that can be measured in multiple decades.)

To “a conscience life”: I’d absolutely agree that it’s possible to beat the market by picking stocks. The very nature of the system is such that somebody has to outperform the market, given that there are also people underperforming it.

I’d just argue that there are very few advantages that individual investors have over institutional investors when it comes to hoping to be in the group that outperforms. Everything I’ve seen indicates that our chances for success are better with low cost index funds.

Don’t know about this book but we in Malaysia seem to be doing well we have high growth and high inflation. An example of inflation would be the local desert “cendol” bought about a month ago at the price of $1.20 in local currency would now sell for $ 1.80 in local currency. Job growth is also strong as we have 2 jobs for every worker and Malaysia imports in foreign labour to do jobs that local workers do not want to do. Hence our problem in Malaysia is now high inflation and good news, high growth.. We do not understand why the Western Media keeps on saying we are in a Recession. Yes our economy slowed down in March 2009 but after that period our economy is now experiencing high growth and high inflation thanks to China’s strong buying of Malaysian goods and services, thank you China ! So please do not say Malaysia is in a Recession when it is not, only the US is in a Recession, the rest of the World is booming thanks to China !

I, too, read and enjoyed this book. Mike covers basic principles, but there is still plenty to be learned in the book as well. It really brought home for me how to actually set up a simplified investing plan. Highly recommend.

I believe the argument for passive vs. active investment is over. For the vast majority, passive investing works better.

But that does not mean that one should just assume that’s all there is to the investing game.

As Eric correctly tells us, there are always going to be bear markets and it’s possible to incur large losses. Why would any intelligent person be willing to take that chance?

It’s a simple matter to use options to give the investor guaranteed protection that limits losses to any pre-defined amount (like an insurance policy deductible). To get this insurance at zero cost, the investor sacrifices the potential for a huge gain. Good profits are still possible, but they are limited.

No one who recommends passive investing gets into discussing the benefits of options. Why is that? It’s a huge omission in my opinion. Options reduce risk. And that works for passive investors.

I, too, read and enjoyed this book. Mike covers basic principles, but there is still plenty to be learned in the book as well. It really brought home for me how to actually set up a simplified investing plan. Highly recommend.
Oops…forgot to say great post! Looking forward to your next one.

“Invest in index funds, ignore Wall Street, and get on with your life. It works”

This type of advice is exactly what frightens me- Lets say you followed this advice 10 years ago and invested in Vanguard’s “Total Stock Market Index” – a common index fund. Guess what your return would be now, after TEN YEARS.

This means that if you had followed such advice and invested $100,000 in this index fund, after 10 years you would have $97,870.00.

If you had instead invested in a CD paying 2.5% interest (that’s probably not even keeping up with inflation) you would have $128,369.15 after 10 years. That is a HUGE difference.

Do you realize how incredibly BAD it is that a 10 year yield is NEGATIVE?? That’s unfathomably bad.

That’s reality.

The reality is also that we are in a deep recession and the future will most likely be bright. Going buy-and-hold in index funds right now might end up being a fantastic long-term investment. What do you know, you might not LOSE money after 10 years.

But seriously, Let’s PLEASE STOP making the claim that index funds “work” because that’s historically been the case. It hasn’t. Looking back, there’s a lot advice that sounded smart but was actually trash.

And if we’re giving advice to “passive investors” who are naturally risk-adverse, why don’t we try and explain that there are other investments besides equities – because, NEWS FLASH, equities aren’t low-risk, even if you’re completely diversified within the market – you’re still just purchasing ONE TYPE of asset.

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